QLogic Reports Third Quarter Results for Fiscal Year 2005; Revenues an

    Business Editors

    ALISO VIEJO, Calif.--(BUSINESS WIRE)--Jan. 19, 2005--QLogic Corporation (Nasdaq:QLGC), the company that powers storage area networks (SANs), today announced its third quarter financial results for the period ended December 26, 2004.
    Net revenues for the third quarter of fiscal 2005 were a record $150.3 million and increased 10% from the $137.1 million reported in the comparable quarter last year. Fibre Channel product revenues for the third quarter of fiscal 2005 were $116.9 million and represented 78% of the Company's total revenue. Fibre Channel product revenues for the third quarter were up 11% from the comparable quarter last year. Net income on a GAAP basis for the third quarter of fiscal 2005 was a record $43.4 million, or $0.46 per share on a diluted basis, and increased 24% from the $35.0 million, or $0.36 per share on a diluted basis, reported in the third quarter of last year.
    During the third quarter of fiscal 2005, net revenues increased 12% sequentially from the $134.6 million reported in the second quarter of fiscal 2005. Fibre Channel product revenues for the third quarter of fiscal 2005 were up 8% sequentially from the second quarter of fiscal 2005. Third quarter net income on a GAAP basis increased 21% from the $35.9 million, or $0.38 per share on a diluted basis, reported in the second quarter of fiscal 2005.
    Net revenues for the first nine months of fiscal 2005 were $414.7 million, up 5% from the $395.6 million reported for the same period of fiscal year 2004. Net income on a GAAP basis for the first nine months of fiscal 2005 was $111.4 million, or $1.19 per share on a diluted basis, an increase of 11% from the $100.8 million, or $1.05 per share on a diluted basis, reported for the same period last year.
    The Company uses certain non-GAAP measures to supplement financial statements based on GAAP. A description of the purpose and benefit of such non-GAAP financial information is presented below and a reconciliation between the GAAP and non-GAAP measures is included in the accompanying financial schedules.
    Non-GAAP net income for the third quarter of fiscal 2005 was $45.1 million, or $0.48 per share on a diluted basis, and increased 19% from the $37.9 million, or $0.39 per share on a diluted basis, reported in the third quarter of last year. Non-GAAP net income for the third quarter of fiscal 2005 increased 20% sequentially from the $37.7 million, or $0.40 per share on a diluted basis, reported for the second quarter of fiscal 2005.
    During the first nine months of fiscal 2005, the Company's non-GAAP net income was $116.8 million, or $1.25 per share on a diluted basis, an increase of 8% from the $107.7 million, or $1.12 per share on a diluted basis, reported last year.
    "We are very pleased with our strong performance during the third quarter and the achievement of both record revenues and net income," said H.K. Desai, the Company's chairman, chief executive officer and president. "The growth in our revenues during the third quarter was primarily driven by double digit sequential growth for both HBAs and switches."
    The Company generated $118 million in cash from operations during the first nine months of fiscal 2005 and used $80 million in fiscal 2005 to purchase its common stock pursuant to the Company's stock repurchase programs. The Company's balance sheet at the end of the third quarter of fiscal 2005 was highlighted by $768 million of cash and short-term investments.
    QLogic's fiscal 2005 third quarter conference call is scheduled today at 2:30 p.m. Pacific Time (5:30 p.m. Eastern Time). H.K. Desai, chairman of the board, chief executive officer and president, and Tony Massetti, vice president and chief financial officer, will host the conference call. The call is being webcast live via the Internet at www.qlogic.com. Phone access to participate in the conference call is available at (719) 457-2658, pass code: 145765.
    The quarterly financial information that the Company intends to discuss during the conference call is included in this press release and will be available on the Company's website at www.qlogic.com for 12 months following the conference call. To listen to a webcast replay of the conference call, please visit the Investor Relations section of the Company's website at www.qlogic.com. The webcast replay will be available for 12 months following the conference call. An audio replay of the conference call will also be available through February 2, 2005 by calling (719) 457-0820, pass code: 145765.

    Non-GAAP Financial Measurements

    The non-GAAP financial measurements contained herein are a supplement to the corresponding financial measurements computed in accordance with generally accepted accounting principles (GAAP). The non-GAAP financial information presented excludes non-cash merger related stock compensation charges and, in fiscal 2004, legal settlements and the related income tax effect. Management believes these charges are not indicative of the on-going costs of the Company's basic core operating performance. These non-GAAP adjustments directly impact the Company's engineering and development expenses, general and administrative expenses, total operating expenses, operating income, income before income taxes, income taxes, net income and net income per share amounts in comparison to the corresponding amounts included in the Company's condensed consolidated statements of operations presented in accordance with GAAP. In order to present the impact of any items excluded from the non-GAAP financial information, the Company has presented a complete reconciliation of each of the non-GAAP measures to the most directly comparable measure calculated in accordance with GAAP in the accompanying financial schedules. The Company has provided these non-GAAP financial measures, on a basis consistent with its historical presentation, to assist investors to better understand the Company's core operating performance on an on-going basis and to enhance comparisons of its core operating performance with historical periods and the core operating performance of its competitors. Items excluded from non-GAAP financial measurements are also excluded by management in its evaluation of the core operating performance of the Company and in its evaluation of trends between fiscal periods. Management uses each of the non-GAAP financial measures presented in its evaluation of the Company's core operating performance and believes that such measures are an important element of its internal performance measurement process. In addition, the Company prepares and maintains its budgets and forecasts of future periods on a basis consistent with these non-GAAP financial measurements. Non-GAAP financial information presented herein has certain limitations in that it does not reflect all of the costs associated with the operations of the Company's business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP information presented by the Company may be different from the non-GAAP measures used by other companies.

    Powered by QLogic

    Since 1993, over 50 million QLogic products have shipped inside servers, workstations, RAID subsystems, tape libraries, disk and tape drives. These products were delivered to small, medium and large enterprises around the world. Powering solutions from leading companies like Cisco, Dell, EMC, Fujitsu, Hitachi, HP, IBM, NEC, Network Appliance, Quantum, StorageTek and Sun Microsystems, the broad line of QLogic controller chips, host bus adapters, network switches and management software move data from storage devices through the network fabric to servers. A member of the S&P 500 and Nasdaq 100, QLogic was named to the following during fiscal year 2004: (i) Fortune's 100 Fastest Growing Companies list for the fourth consecutive year; (ii) Forbes' Best 200 Small Companies for the fifth consecutive year; and (iii) Business Week's list of 100 Hot Growth Companies. For more information visit www.qlogic.com.
    Note: All QLogic-issued press releases appear on the Company's website (www.qlogic.com). Any announcement that does not appear on the QLogic website has not been issued by QLogic.

    Disclaimer -- Forward-Looking Statements

    This press release contains statements relating to future results of the Company (including certain beliefs and projections regarding business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied in the forward-looking statements. The Company advises readers that these potential risks and uncertainties include, but are not limited to: the volatility of the Company's stock price; fluctuations in operating results; the dependence on the storage area network market; the ability to maintain and gain market or industry acceptance of the Company's products; the dependence on a limited number of customers; seasonal fluctuations and uneven sales patterns in orders from customers; the ability to compete effectively with other companies; declining average unit sales prices of comparable products; a reduction in sales efforts by current distributors; the dependence on relationships with certain silicon chip suppliers and other subcontractors; the complexity of the Company's products; sales fluctuations arising from customer transitions to new products; terrorist activities and resulting military actions; international, economic, regulatory, political and other risks; changes in semiconductor foundry capacity; uncertain benefits from strategic business combinations; the ability to maintain or expand upon strategic alliances; the strain on resources caused by rapid growth and expansion; the ability to attract and retain key personnel; the ability to protect proprietary rights or to satisfactorily resolve any infringement claims; changes in tax laws or adverse tax audit results; decreasing effectiveness of equity compensation in employee retention; charter documents and stockholder rights plan that may discourage a business combination; and facilities located in areas subject to earthquakes.
    More detailed information on these and additional factors which could affect the Company's operating and financial results are described in the Company's Forms 10-K, 10-Q and other reports, filed or to be filed with the Securities and Exchange Commission. The Company urges all interested parties to read these reports to gain a better understanding of the many business and other risks that the Company faces. The forward-looking statements contained in this press release are made only as of the date hereof, and the Company undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
    Trademarks and registered trademarks are the property of the companies with which they are associated.

QLOGIC CORPORATION SUMMARY CONSOLIDATED RESULTS OF OPERATIONS (unaudited -- in thousands, except per share amounts)

Consolidated GAAP Results

Three Months Ended Nine Months Ended ----------------------------- ------------------- Dec. 26, Sep. 26, Dec. 28, Dec. 26, Dec. 28, 2004 2004 2003 2004 2003 --------- --------- --------- --------- ---------

Net revenues $150,252 $134,609 $137,064 $414,672 $395,566 Gross profit 104,804 93,436 94,183 288,096 268,317 Operating income 60,805 50,856 52,879 159,949 150,132 Net income 43,356 35,882 34,952 111,441 100,809 Net income per share - diluted 0.46 0.38 0.36 1.19 1.05

Weighted average common shares outstanding - diluted 93,484 93,222 96,823 93,604 96,395

Consolidated Results Including Non-GAAP Adjustments(1)

Three Months Ended Nine Months Ended ----------------------------- ------------------- Dec. 26, Sep. 26, Dec. 28, Dec. 26, Dec. 28, 2004 2004 2003 2004 2003 --------- --------- --------- --------- ---------

Net revenues $150,252 $134,609 $137,064 $414,672 $395,566 Gross profit 104,804 93,436 94,183 288,096 268,317 Operating income 62,584 52,635 56,499 165,330 157,756 Net income 45,135 37,661 37,888 116,822 107,749 Net income per share - diluted 0.48 0.40 0.39 1.25 1.12

Weighted average common shares outstanding - diluted 93,484 93,222 96,823 93,604 96,395

(1) For a description of the limitations of relying on non-GAAP financial information, see "Non-GAAP Financial Measurements" above. A complete reconciliation of each of the non-GAAP financial measures to the most comparable GAAP financial measure is presented below.

QLOGIC CORPORATION SUMMARY CONSOLIDATED RESULTS OF OPERATIONS (continued) (unaudited -- in thousands)

Description of Non-GAAP Adjustments

A summary of the non-GAAP adjustments is as follows:

Three Months Ended Nine Months Ended ----------------------------- ------------------- Dec. 26, Sep. 26, Dec. 28, Dec. 26, Dec. 28, 2004 2004 2003 2004 2003 --------- --------- --------- --------- ---------

Merger related stock compensation charges $1,779 $1,779 $1,870 $5,381 $5,874 Legal settlements -- -- 1,750 -- 1,750 --------- --------- --------- --------- --------- Pre-tax adjustments 1,779 1,779 3,620 5,381 7,624 Income tax effect -- -- (684) -- (684) --------- --------- --------- --------- --------- After-tax non-GAAP adjustments $1,779 $1,779 $2,936 $5,381 $6,940 ========= ========= ========= ========= =========

Non-GAAP Financial Information

In addition to the results presented throughout this document in accordance with generally accepted accounting principles (GAAP), the Company has provided non-GAAP measurements, which present operating results on a basis including certain non-GAAP adjustments. Details of these adjustments are presented in the table above.

QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited -- in thousands, except per share amounts)

Three Months Ended December 26, 2004 --------------------------------- GAAP Non-GAAP Non-GAAP Results Adjustments Results(1) --------- ----------- -----------

Net revenues $150,252 $-- $150,252 Cost of revenues 45,448 -- 45,448 --------- ----------- ----------- Gross profit 104,804 -- 104,804

Operating expenses: Engineering and development 24,331 (1,779) 22,552 Sales and marketing 15,166 -- 15,166 General and administrative 4,502 -- 4,502 --------- ----------- ----------- Total operating expenses 43,999 (1,779) 42,220 --------- ----------- -----------

Operating income 60,805 1,779 62,584

Interest and other income 4,468 -- 4,468 --------- ----------- -----------

Income before income taxes 65,273 1,779 67,052

Income taxes 21,917 -- 21,917 --------- ----------- -----------

Net income $43,356 $1,779 $45,135 ========= =========== ===========

Net income per share: Basic $0.47 $0.02 $0.49 Diluted $0.46 $0.02 $0.48

Number of shares used in per share computations: Basic 92,157 -- 92,157 Diluted 93,484 -- 93,484

Three Months Ended December 28, 2003 --------------------------------- GAAP Non-GAAP Non-GAAP Results Adjustments Results(1) --------- ----------- -----------

Net revenues $137,064 $-- $137,064 Cost of revenues 42,881 -- 42,881 --------- ----------- ----------- Gross profit 94,183 -- 94,183

Operating expenses: Engineering and development 21,514 (1,870) 19,644 Sales and marketing 13,846 -- 13,846 General and administrative 5,944 (1,750) 4,194 --------- ----------- ----------- Total operating expenses 41,304 (3,620) 37,684 --------- ----------- -----------

Operating income 52,879 3,620 56,499

Interest and other income 3,495 -- 3,495 --------- ----------- -----------

Income before income taxes 56,374 3,620 59,994

Income taxes 21,422 684 22,106 --------- ----------- -----------

Net income $34,952 $2,936 $37,888 ========= =========== ===========

Net income per share: Basic $0.37 $0.03 $0.40 Diluted $0.36 $0.03 $0.39

Number of shares used in per share computations: Basic 94,458 -- 94,458 Diluted 96,823 -- 96,823

(1) For a description of the limitations of relying on non-GAAP financial information, see "Non-GAAP Financial Measurements" above.

QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited -- in thousands, except per share amounts)

Three Months Ended December 26, 2004 --------------------------------- GAAP Non-GAAP Non-GAAP Results Adjustments Results(1) --------- ----------- -----------

Net revenues $150,252 $-- $150,252 Cost of revenues 45,448 -- 45,448 --------- ----------- ----------- Gross profit 104,804 -- 104,804

Operating expenses: Engineering and development 24,331 (1,779) 22,552 Sales and marketing 15,166 -- 15,166 General and administrative 4,502 -- 4,502 --------- ----------- ----------- Total operating expenses 43,999 (1,779) 42,220 --------- ----------- -----------

Operating income 60,805 1,779 62,584

Interest and other income 4,468 -- 4,468 --------- ----------- -----------

Income before income taxes 65,273 1,779 67,052

Income taxes 21,917 -- 21,917 --------- ----------- -----------

Net income $43,356 $1,779 $45,135 ========= =========== ===========

Net income per share: Basic $0.47 $0.02 $0.49 Diluted $0.46 $0.02 $0.48

Number of shares used in per share computations: Basic 92,157 -- 92,157 Diluted 93,484 -- 93,484

Three Months Ended September 26, 2004 --------------------------------- GAAP Non-GAAP Non-GAAP Results Adjustments Results(1) --------- ----------- -----------

Net revenues $134,609 $-- $134,609 Cost of revenues 41,173 -- 41,173 --------- ----------- ----------- Gross profit 93,436 -- 93,436

Operating expenses: Engineering and development 24,146 (1,779) 22,367 Sales and marketing 14,202 -- 14,202 General and administrative 4,232 -- 4,232 --------- ----------- ----------- Total operating expenses 42,580 (1,779) 40,801 --------- ----------- -----------

Operating income 50,856 1,779 52,635

Interest and other income 4,233 -- 4,233 --------- ----------- -----------

Income before income taxes 55,089 1,779 56,868

Income taxes 19,207 -- 19,207 --------- ----------- -----------

Net income $35,882 $1,779 $37,661 ========= =========== ===========

Net income per share: Basic $0.39 $0.02 $0.41 Diluted $0.38 $0.02 $0.40

Number of shares used in per share computations: Basic 92,485 -- 92,485 Diluted 93,222 -- 93,222

(1) For a description of the limitations of relying on non-GAAP financial information, see "Non-GAAP Financial Measurements" above.

QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited -- in thousands, except per share amounts)

Nine Months Ended December 26, 2004 --------------------------------- GAAP Non-GAAP Non-GAAP Results Adjustments Results(1) --------- ----------- -----------

Net revenues $414,672 $-- $414,672 Cost of revenues 126,576 -- 126,576 --------- ----------- ----------- Gross profit 288,096 -- 288,096

Operating expenses: Engineering and development 71,632 (5,381) 66,251 Sales and marketing 43,568 -- 43,568 General and administrative 12,947 -- 12,947 --------- ----------- ----------- Total operating expenses 128,147 (5,381) 122,766 --------- ----------- -----------

Operating income 159,949 5,381 165,330

Interest and other income 12,334 -- 12,334 --------- ----------- -----------

Income before income taxes 172,283 5,381 177,664

Income taxes 60,842 -- 60,842 --------- ----------- -----------

Net income $111,441 $5,381 $116,822 ========= =========== ===========

Net income per share: Basic $1.20 $0.06 $1.26 Diluted $1.19 $0.06 $1.25

Number of shares used in per share computations: Basic 92,663 -- 92,663 Diluted 93,604 -- 93,604

Nine Months Ended December 28, 2003 --------------------------------- GAAP Non-GAAP Non-GAAP Results Adjustments Results(1) --------- ----------- -----------

Net revenues $395,566 $-- $395,566 Cost of revenues 127,249 -- 127,249 --------- ----------- ----------- Gross profit 268,317 -- 268,317

Operating expenses: Engineering and development 65,731 (5,874) 59,857 Sales and marketing 38,011 -- 38,011 General and administrative 14,443 (1,750) 12,693 --------- ----------- ----------- Total operating expenses 118,185 (7,624) 110,561 --------- ----------- -----------

Operating income 150,132 7,624 157,756

Interest and other income 12,463 -- 12,463 --------- ----------- -----------

Income before income taxes 162,595 7,624 170,219

Income taxes 61,786 684 62,470 --------- ----------- -----------

Net income $100,809 $6,940 $107,749 ========= =========== ===========

Net income per share: Basic $1.07 $0.07 $1.14 Diluted $1.05 $0.07 $1.12

Number of shares used in per share computations: Basic 94,252 -- 94,252 Diluted 96,395 -- 96,395

(1) For a description of the limitations of relying on non-GAAP financial information, see "Non-GAAP Financial Measurements" above.

QLOGIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited -- in thousands)

Dec. 26, 2004 Mar. 28, 2004 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $185,847 $156,593 Short-term investments 582,339 586,441 Accounts receivable, net 76,539 67,355 Inventories 24,309 20,935 Other current assets 29,155 22,256 --------------- --------------- Total current assets 898,189 853,580

Property and equipment, net 70,654 67,224 Other assets 10,689 7,711 --------------- ---------------

$979,532 $928,515 =============== ===============

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $20,466 $18,570 Accrued compensation 19,612 18,849 Income taxes payable 21,527 10,691 Other liabilities 14,489 12,687 --------------- --------------- Total current liabilities 76,094 60,797

Total stockholders' equity 903,438 867,718 --------------- ---------------

$979,532 $928,515 =============== ===============

QLOGIC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited -- in thousands)

Nine Months Ended -------------------------------- Dec. 26, 2004 Dec. 28, 2003 --------------- ---------------

Cash flows from operating activities: Net income $111,441 $100,809 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,152 10,886 Deferred income taxes (4,422) 7,398 Tax benefit from issuance of stock under stock plans 1,358 9,620 Amortization of deferred stock- based compensation 472 963 Provision for losses on accounts receivable 414 141 Loss on disposal of property and equipment 245 638 Changes in operating assets and liabilities: Accounts receivable (9,598) (26,393) Inventories (3,374) 1,506 Other assets (5,454) 1,532 Accounts payable 1,896 (146) Accrued compensation 763 (1,930) Income taxes payable 10,836 (1,344) Other liabilities 1,802 9,406 --------------- --------------- Net cash provided by operating activities 117,531 113,086 --------------- ---------------

Cash flows from investing activities: Purchases of marketable securities (462,442) (836,453) Sales and maturities of marketable securities 461,379 761,030 Additions to property and equipment (14,827) (15,434) --------------- --------------- Net cash used in investing activities (15,890) (90,857) --------------- ---------------

Cash flows from financing activities: Proceeds from issuance of stock under stock plans 7,622 19,338 Purchase of treasury stock (80,009) (19,545) --------------- --------------- Net cash used in financing activities (72,387) (207) --------------- ---------------

Net increase in cash and cash equivalents 29,254 22,022

Cash and cash equivalents at beginning of period 156,593 137,810 --------------- --------------- Cash and cash equivalents at end of period $185,847 $159,832 =============== ===============

QLOGIC CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION (unaudited -- in thousands)

Net Revenues

A summary of the Company's revenue components is as follows:

Three Months Ended Nine Months Ended ----------------------------- ------------------- Dec. 26, Sep. 26, Dec. 28, Dec. 26, Dec. 28, 2004 2004 2003 2004 2003 --------- --------- --------- --------- ---------

Fibre Channel products $116,937 $108,414 $105,477 $330,143 $298,701 SCSI products 31,376 24,899 29,892 80,358 93,411 Other 1,939 1,296 1,695 4,171 3,454 --------- --------- --------- --------- --------- $150,252 $134,609 $137,064 $414,672 $395,566 ========= ========= ========= ========= =========

Geographic Revenues

Revenues by geographic area are presented based upon the country of destination. Net revenues by geographic area are as follows:

Three Months Ended Nine Months Ended ----------------------------- ------------------- Dec. 26, Sep. 26, Dec. 28, Dec. 26, Dec. 28, 2004 2004 2003 2004 2003 --------- --------- --------- --------- ---------

United States $61,138 $54,633 $59,660 $169,287 $174,850 International 89,114 79,976 77,404 245,385 220,716 --------- --------- --------- --------- --------- $150,252 $134,609 $137,064 $414,672 $395,566 ========= ========= ========= ========= =========

--30--ST/np*

CONTACT: QLogic Corporation Editor's Contact: Gerry Ansel, (949) 389-7664 gerry.ansel@qlogic.com or Investor's Contact: Tony Massetti, (949) 389-7533 tony.massetti@qlogic.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE NETWORKING EARNINGS CONFERENCE CALLS SOURCE: QLogic Corporation

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